Sector Guidelines – Steering KfW’s new financing activities according to the targets of the Paris Climate Agreement

The transformation process towards a sustainable society is the most pivotal challenge of our times. As a digital transformation and promotional bank, KfW Group therefore takes a particular responsibility for the successful transformation. KfW’s objective is to successfully provide the best targeted support to its clients and partners in the transformation process, to ensure the economic and societal opportunities of this profound structural change can be embraced. Thus, KfW Group focuses on forward-looking Paris-compatible sector guidelines for greenhouse gas-intensive sectors, an exclusion list as well as high environmental and social standards in its financing activities. Further supported by a group-wide impact management system, KfW Group systematically contributes to its primary objective of sustainable promotion which is defined as the transformation of the economy and society with the aim of improving economic, ecological and social living conditions around the world.

Limiting global warming requires a profound transformation towards a climate-neutral society. This can only succeed if people stand behind the climate goals. This furthermore requires attractive funding and financing activities so clients and partners can purposefully invest in the structural opportunities of this transformation process. It is especially important to support the advancement of the transformation process in greenhouse-gas-intensive sectors that are facing particular challenges with regard to climate change and are therefore of essential importance to achieving the targets set in the Paris Climate Agreement.

Graphic representation of the interrelationships between shipping, automobiles, steel, buildings, aviation, energy

Against this backdrop, KfW Group’s Paris-compatible sector guidelines systematically focus on greenhouse gas-intensive sectors for which sector specific minimum requirements for the climate compatibility of technologies financed by KfW are defined. These minimum requirements are scientifically derived from highly recognized Paris-compatible climate scenarios published by the International Energy Agency (IEA) and concretely point out with which combination of use of transitional and technologies of the future the transformation process towards greenhouse gas neutrality can successfully be implemented. For its new financing activities to remain consistently “Paris compatible” while ensuring that the minimum requirements remain realistically achievable for clients and partners, KfW gradually increases its climate-compatibility requirements.

The Paris-compatible sector guidelines, aligned with the 1.65 degree climate target, were are implemented for the first time in 2021 defining guidelines for the shipping and automotive sector, iron and steel production, buildings, electricity generation as well as for the aviation sector. In 2022 KfW focused on further developing the sector guidelines and revised them with regard to the 1.5 degree climate target. With the Paris-compatible sector guidelines, KfW is committed to the 1.5 degree climate target. In line with this, KfW takes responsibility for a climate-friendly transformation in Germany and worldwide. To complement this, a sector guideline for the oil and natural gas sector was implemented in December 2023, which is also aligned with the 1.5 degree target.

In KfW’s domestic promotional business the respective programme specific requirements (e.g. in the programme information sheet) remain decisive and will gradually (e.g. when introducing new programmes or extending existing programmes) be reviewed for compatibility with the sector guidelines and, if necessary, will be adapted accordingly.

The current Paris-compatible aligned minimum requirements for new financing projects can be found here.

Further information on the derivation of the Paris-compatible sector guidelines can be found here.